Recruitment sector – on the horizon in 2016

Posted on: February 12th, 2016

There is continued confidence and potential growth in the recruitment sector, with 94% of employers planning to increase headcount. There was also a 9.7% increase in turnover in the recruitment sector for 2014/2015.

Against this backdrop however, there are significant external influences which are going to hit the sector in 2016.

National Living Wage

From April 2016 individuals aged 25 and over will be entitled to receive the National Living Wage of £7.20 per hour, increasing to above £9 per hour by 2020. Overall this is expected to cost employers £804m (£672m in wages and £132m in associated non-wage costs, such as NICs). There is also likely to be a ripple effect as businesses try and maintain pay differentials, estimated to cost employers £59.5m. The cost to end-clients allowing for holiday pay and pensions, means either that recruiters will need to increase their pricing to preserve their margin or their margin will be reduced. In public sector occupations, e.g. domiciliary and residential care, where there are simply not the funds available to pay for extra costs, there may be a direct hit to recruitment margins.

Cap on NHS pay

By April, all NHS trusts will be unable to pay more than 55% more than a permanent employee’s salary for an agency worker. This will have a clear effect on recruitment margins. More worrying is the fact that this could seriously limit a recruiter’s ability to attract and retain candidates for placements, bearing in mind that there are more attractive opportunities overseas or, particularly in clinical roles, in the private sector where caps will not apply. Those businesses that have entered into framework agreements with NHS trusts will seriously need to review their business plans and forecasts.

Conduct Regulations

The recent consultation on amending the Conduct Regulations closed on 23rd November and is still under review. Unfortunately, no reference was made to them in the Autumn Statement. It seems likely that, amongst other changes, the requirement to advertise specific roles in Great Britain in English when looking overseas will be extended to cover general recruitment campaigns. Further, there will no longer be a legal obligation to agree terms of business with clients prior to the supply of temporary workers. Recruitment companies are always best advised to have terms of business incorporated into their trading relationship, but the relaxation of the rules will provide more flexibility and agility to respond to end-client requirements and speed of response without undue formality.

Pay Audits

Primarily affecting the larger recruitment companies, 2016 is likely to see the introduction of mandatory publication of pay audits for employers in the private and voluntary sectors with 250 or more employees. This is designed to highlight gender pay gaps. The advice to businesses caught by the new requirement is to carry out an informal pre-audit before this comes into force, in order to establish the administration involved and to identify issues in advance. Unfortunately, it is currently unclear whether temporary workers should be included in the audit.
Issues on the Horizon

The initial discussion document issued by HMRC on IR35 heralds potential changes in 2016. Whilst still early days, it is clear HMRC is targeting abuse of IR35 and the areas that are likely to come up for consultation will include making “engagers” (being end-clients) liable for any non-payment of tax and NICs arising from any individuals engaged through personal service companies or umbrella companies; not just the recruitment company involved. One area for concern will be that if this risk is moved to end-clients, they may be less likely to take on workers via a recruiter, since one of the reasons recruitment companies are used is to remove the associated risks.

Finally there is the big EU Referendum debate – it is still unclear when this will happen, how it will happen and what the EU’s response will be to the Government’s negotiation for change. The uncertainty surrounding all of this may well affect the UK jobs market and therefore those supplying labour into that market – longer term the supply of appropriate labour from EU and beyond is likely to be affected.


Therefore whilst the markets look buoyant, the sector needs to be on its toes in terms of meeting the challenges from regulatory and political influence and should plan its business models accordingly.

If you would like to discuss any of the above or if you require any further information please contact our Corporate team.